Exclusions and Deductions

Instructions:
1. Answer these problems on a separate paper by your own handwriting.
2. Provide solutions and double rule your final answers. No solution, no credit.
3. Send your answers individually to my viber account.
4. In case you place your answers on a separate paper, take a picture and send it to my viber
account
5. Test yourself and rely on your own understanding. Trust yourself and enjoy it.

I.

Rhenzel owns two residences. The second residence, which is being rented out for P1.5 million a year is
the sole source of income for Rhenzel. The tenant pays for the rental in advance which he deposits. In
2019, he earned P175,000 interest from the advance rentals which he placed in the bank. Among the items
of expenditure which Rhenzel incurred in 2019 are the following:

Interest on the mortgage of the rental property...... P250,000

Annual fire insurance premiums on the property....... 50,000
Repairs and maintenance.............................. 75,000
Value of painting he placed on a temporary basis on
the rented property............................ 625,000

The amount that Rhenzel can deduct as interest expense is ______________.

II.

Taxes paid by Vicente, Inc. in 2019 were as follows:

National income taxes:
Normal tax...............................................................……. P500,000
Improperly accumulated income tax.................... 300,000
Capital gain tax...................................................... 740,000
Final tax.................................................................. 50,000
Community tax.................................................................... 15,500
Value-added tax................................................................... 89,000
Local taxes and licenses....................................................... 30,000
Interest for late payment of national and local taxes........... 40,000
Surcharges for late payment of national and local taxes...... 60,000
Professional tax.............................................. P 300
Gravel and sand tax........................................ 20,000
USA income taxes for 2019........................... 500,000
Real property tax on its office building...................... 70,000
Road user’s tax on its delivery vans................ 50,000
Local annual fixed tax for its delivery vans........ 10,000

If Vicente, Inc. has signified in its return to avail of foreign income tax paid as a deduction, how much
deduction for taxes may Vicente, Inc. claim on its 2019 income?
 Exclusions and Deductions

III.
Naak Cindyti was a victim of a vehicular accident who filed a case against Suma Gasa. The court
awarded him the following:
Actual damages for expenses paid in the hospital P500, 000
Attorney’s fee paid to his lawyer 150, 000
Actual damages for lost arm 250, 000
Nominal Damages 30,000
Moral damages 200, 000
Exemplary damages 150, 000
Salaries for 6 months when the tax payer was in the Hospital, absent from
his job w/ a monthly salary of P50, 000 300, 0000

The total income subject to tax is?

IV.
Usang Boltahe, a national athlete, received the following during 2020:
Ramon Magsaysay award P 50,000.00
Athlete of the year award 100,00.00
Prize – Jollibee raffle 5,000.00
Prize for winning the silver Olympic medal 500,000.00
Cash award from Mr. Alfred Lim 250,000.00
Cash from Nissan as a gift 1,000,000.00
Winnings – Philippine sweepstake 100,000.00
Gambling winnings 5,000,000.00

The total winnings/awards and prizes not subject to income tax is:

V.
Mang Kanor, single, received the following during the taxable year:
Proceeds of his life insurance paid at an annual premium of P15,000
within 15 years P2.5M
Proceeds of his mother’s life insurance paid at an annual premium of
P10,000 within 20 years P5M
House and lot inherited from his mother P3M
Rent income from inherited properties P250,000

For income tax purposes, how much of the above items must be included in his gross
income?
 Exclusions and Deductions

VI.

Michelin Guzy, Inc., a domestic corporation, reported the following result of operations in the Philippines
and China in 2020:

Gross Income in the Philippines 5,500,000

Gross Income in Italy 3,500,000
Gross Income in Russia 2,500,000
Expenses in the Philippines 3,000,000
Expenses in Italy 2,000,000
Expenses in Russia 1,500,000
Income tax paid in Italy 400,000
Income tax paid in Russia 200,000

1. If the income taxes paid in the foreign countries are claimed as a deduction, how much is the income
tax payable of Michelin Guzy, Inc.?
2. If the income taxes paid in the foreign countries are claimed as a tax credit, how much is the income
tax payable of Michelin Guzy, Inc.?

VII.

Mr. Panchito, a lawyer by profession, had the following income and donations during the year 2020:
Professional fees…………………………………….. P1,500,000
Expenses related to lawyering…………..………….. 400,000
Facilitation fees……………………………………… 200,000
Donations to NEDA accredited activities..……………. 100,000
Donations to North Korea pursuant to treaties………. 30,000
Donations to Lung Center of the Philippines,
an accredited charitable institutions………….... 50,000
Donations to the City of Cabanatuan for public purpose… 80,000
Donations to San Juan De Dios Hospital,
a non-accredited charitable institutions………. 60,000
Donations to El Chupacabra,
a foreign charitable institution……………….. 40,000
Donations to mendicants……………………………….. 50,000

How much is the total deductible contribution expense?

VIII.

Burn Inc. leases its lot to Sta. Barbara for 15 years with an annual rental of P50,000. They have agreed
that Sta. Barbara shall construct a building thereon with a stipulation that at the end of the lease term, the
ownership of the building will go to Burn Inc. The building has a fair market value of P1,200,000 with an
estimated life of 20 years. On the 10th year of the lease, the building was destroyed by tornado. A part of
it was saved with an estimated amount of P40,000 and the same was covered by insurance amounting to
P100,000.

How much is the loss on the building?

 Exclusions and Deductions

IX.

Alibaba Corp. is engaged in the business of bakery and providing parlor services with net sales and
revenue of P6,000,000 and P4,000,000, respectively. The actual entertainment, amusement and recreation
expenses for the taxable year totaled P100,000.

For income tax purposes, how much is the total deductible entertainment, amusement and recreation
expenses for each business, respectively?

X.

The taxpayer is a domestic corporation with the following data for the years 2019 and 2020:
2019 2020
Gross profit from sales................................................. P1,600,000 P3,000,000
Operating expenses...................................................... 1,800,000 1,200,000
Dividend income from domestic corporations............. 20,000
Interest income on trade notes receivable............ …… 15,000
Capital gain on direct sale to buyer of share
domestic corporation............................................... 100,000

On loss by fire of a warehouse where the insurance

company carted away the scrap:
Cost....................................................................... 2,000,000
Accumulated depreciation.................................... 800,000
Insurance recovery............................. ……... 700,000

On loss by embezzlement of a bonded cashier amounting to

P300,000, where there is a P500,000 loss coverage
by a bonding company, and where a case was filed
in court for the entire amount of embezzlement of....... 150,000

On loss by accident of a delivery equipment, with the

following data:
Cost of the delivery equipment........................ 1,500,000
Accumulated depreciation................................ 800,000
Cost to restore to normal operating condition… 250,000
Insurance recovery............................. ………... 180,000

How much is the taxable income for 2020?